Political Turnover, Ownership, and Corporate Investment

52 Pages Posted: 22 Aug 2014 Last revised: 23 Dec 2016

See all articles by Jerry Cao

Jerry Cao

Independent

Brandon Julio

Lundquist College of Business, University of Oregon

Tiecheng Leng

Sun Yat-sen University

Sili Zhou

Fanhai International School of Finance and School of Economics, Fudan University

Date Written: 10 30, 2016

Abstract

We examine the impact of political influence and ownership on corporate investment by exploiting the unique way provincial leaders are promoted in China. The tournament-style promotion system creates incentives for new governors to exert influence over investment in the early years of their term. We find a divergence in investment rates between state owned enterprises (SOEs) and private firms following political turnover. SOEs increase investment by 6.0% following the turnover while investment rates for private firms decline, suggesting that the political influence exerted over SOEs may crowd out private investment.

Keywords: Corporate investment, Political turnover, China, SOE, Grabbing-hand, Crowding out, Investment efficiency.

JEL Classification: G30, G31, G38

Suggested Citation

Cao, Jerry and Julio, Brandon and Leng, Tiecheng and Zhou, Sili, Political Turnover, Ownership, and Corporate Investment (10 30, 2016). Available at SSRN: https://ssrn.com/abstract=2485199 or http://dx.doi.org/10.2139/ssrn.2485199

Jerry Cao

Independent

No Address Available

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Tiecheng Leng (Contact Author)

Sun Yat-sen University ( email )

135 Xingang West Road
Guangzhou, 510275
China

Sili Zhou

Fanhai International School of Finance and School of Economics, Fudan University ( email )

Room 520, Building 5, 220 Handan Road
Shanghai
China

HOME PAGE: http://siliz.weebly.com/

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